【SMM Analysis】What the hell is going on with the Chinese Lithium market this week?

This week, the price of lithium carbonate on the Guangzhou Futures Exchange fluctuated significantly, with the main November contract first rising from around 73,000 yuan/tonne to 78,000 yuan/tonne in the first three days of the week, and then falling back to the 73,000 yuan range after Thursday and Friday. The rebound in prices this week was mainly due to a correction after being overdrop, as well as emotional guidance. Some short positions taken earlier were passively closed out.

Looking at the spot market, market traders were quite active in buying, mainly because at the beginning of August, downstream cathode companies replenished their lithium stocks at lower prices, which led to a noticeable depletion of traders' inventory. However, at the current low prices, lithium producers are holding back on selling in the spot market, making it difficult for traders to restock. As a result, the active trade market has created an illusion of spot shortages, especially for high-quality brand lithium carbonate which is even harder to purchase, pushing the futures market prices further up.

But for cathode material factories, even with the price rebound this week, there was no panic buying in large quantities. Firstly, the lithium carbonate long-term contract quantities are still sufficient for their regular production. Moreover, the current oversupply structure has not undergone a clear reversal, making cathode companies still focus on demand-based restocking for spot purchases of lithium carbonate. With the obvious rise in prices this week, the enthusiasm of cathode companies for purchasing lithium has significantly declined. Under such circumstances, futures prices have suffered a noticeable decline on Thursday and Friday.

Looking at the ongoing price expectations, if the price of lithium carbonate pulls up again, it will give lithium producers the opportunity to focus on mass production and carry out hedging and warehouse delivery. Moreover, the current Contango structure of futures will also provide opportunities for many companies that should have already stopped production to maintain profits through hedging. This will also affect expectations of subsequent supply reduction. After companies carry out a large number of hedges, the subsequent price of lithium carbonate may fall even more fiercely.